Walker v D'Alessandro
[2010] VSC 15
•5 February 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4840 of 2009
IN THE MATTER of Order 54 of the Supreme Court (General Civil Procedure) Rules 2005
and
IN THE MATTER of the estate of IVY ROSALIND MARY PUMP, deceased
BETWEEN
| SHIRLEY RUTH WALKER ALAN JOHN PUMP and JENNIFER KAYE LOECHEL | Plaintiffs |
| and | |
| CLEM D'ALESSANDRO (who is sued as executor of the estate of IVY ROSALIND MARY PUMP, deceased) | Defendant |
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JUDGE: | T FORREST J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 February 2010 | |
DATE OF JUDGMENT: | 5 February 2010 | |
CASE MAY BE CITED AS: | Walker & ors v D'Alessandro | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 15 | |
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EXECUTOR’S COMMISSION – Solicitor acting as Executor – Fiduciary duty – Full disclosure required before informed consent to Executor’s Commission.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Newton | Bridgedrenenlegal |
| For the Defendant | Ms C Sparke | Littleton Hackford & D’Alessandro |
HIS HONOUR:
Ivy Rosalind Mary Pump (“the deceased”) died on 8 April 2007. By a Will dated 27 July 1999 she appointed two solicitors Mr Clem D’Alessandro and Mr Garth Reese-Hackford as executors and trustees of that will (“the will”).
Probate of the Will was granted to Mr D’Alessandro on 9 August 2007. Mr Reese-Hackford renounced probate.[1]
[1]Exhibit SRW 1.
Apart from a minor bequest the estate was disposed of by the Will as follows:
“2.I DEVISE AND BEQUEATH the whole of my estate to my Trustees UPON TRUST to pay my debts funeral and testamentary expenses and to hold the balance then remaining UPON THE FOLLOWING TRUSTS:
…
b)to pay the rest and residue in equal parts to such of them my brothers DOUGLAS PUMP and LEONARD PUMP in equal shares absolutely.
3.I DECLARE that if either of my said brothers predeceases me leaving a child or children living at my death then in that event such child or children of such deceased brother of mine shall take and if more than one equally the share which his, her or their parent would have taken had such parent survived me and attained a vested interest.”
Douglas and Leonard Pump predeceased the deceased. Between Douglas and Leonard they were survived by six children, three of whom bring an application under Order 54 of the Supreme Court (General Civil Procedure) Rules. The Summons on Originating Motion seeks the following orders:
1. That the agreement of the beneficiaries consenting to the Defendant’s request for Executor’s Commission of 3% be set aside and declared unenforceable.
2. That the Defendant provides an itemised account of the legal fees incurred in acting on behalf of the Estate.
3. That the Defendant make application to this Honourable Court for executor’s commission, if any, he is entitled to.
4. Such further or other orders or directions as this Honourable Court considers just and equitable.
5. That the Defendant pays the plaintiffs’ costs of the application.[2]
[2]Without abandoning any potential orders that may be made under proposed Orders 4 and 5.
In discussion at the outset Mr Newton confined the remedy sought to proposed Order 1 above. Thus the nub of the case is whether an agreement signed by all beneficiaries under the will consenting to the Defendant’s request for Executor’s Commission of 3% ought be declared unenforceable and set aside.
Evidence was received by way of affidavit from the three plaintiffs and from the defendant. All were cross-examined. Various exhibits were annexed to the plaintiffs’ affidavits and, where relevant, are referred to in these reasons. Various objections were taken by Ms Sparke appearing for the defendant to certain passages within the affidavits.[3] These objections largely relate to inexpert evidence of opinion or relevance. There is substance to these objections and I will not consider any of the identified passages which are, at any event, a very small portion of the evidence. Mr Gordon Pump, another beneficiary but not a plaintiff also made an affidavit in support of the plaintiffs’ case. He was not cross-examined.
[3]Affidavit of Shirley Walker
Para 6 (1st sentence).
Para 13 (4th sentence).
Para 15 (4 words)
Para 21 (2nd sentence).
Affidavit of Jenny Lochiel.
Para 20 (1st sentence).
Affidavit of Alan Pump
Para 12.
Affidavit of Gordon Pump.
Para 13.
Background
Mr Clem D’Alessandro is a solicitor and partner in the firm Littleton Hackford and D’Alessandro which practices from a Morwell address. The estate of the deceased was relatively substantial comprising assets of over $1.6 million. In addition to acting as executor and trustee, Mr D’Alessandro’s firm acted on behalf of the estate.
It is common ground that each beneficiary to the will signed a consent (“the consent document”) to the executor in these terms:
I,……
as one of the beneficiaries under the will of the late IVY ROSALIND MARY PUMP HEREBY AUTHORISE REQUEST AND DIRECT you
1.To pay Mr Clem D’Alessandro, out of funds of the deceased’s estate executor’s commission calculated at the rate of three (3) per rent (sic) of the corpus and income of the estate.
2.Advise Mr Clem D’Alessandro to make Application to the Supreme Court of Victoria for a grant of executor’s commission.
DatedMarch 2008
Signed……
It is apparent that the consent document contained alternative methods of calculating the executor’s commission – either by consent of all the beneficiaries, or in the absence of this consent by Application to this court presumably made under s 65 Administration and Probate Act 1958. All beneficiaries elected to accept option 1. In short it is the plaintiffs’ position that any consent given was not the informed consent that is required by equity when a fiduciary profits at the expense of his principal. The defendant, on the other hand, says that the plaintiffs and the other beneficiaries were sufficiently advised of their rights and elected to consent to him having commission at 3%. Thus the defendant says the plaintiff made a common law election between inconsistent rights and ought to be bound by that election.
Facts surrounding the execution of the consent document
The estate was not a complicated one. By the time of the death of the deceased nearly all her assets were in cash accounts. There were two mortgages totalling $65,000. The defendant apparently performed some work to improve the performance of one of these.
On 1 March 2008 the first plaintiff Mrs Shirley Walker spoke to Mr D’Alessandro by telephone. There are conflicting accounts of this conversation. Mrs Walker in her affidavit filed in the matter, says she enquired of the defendant as to when payment to the beneficiaries might be expected. She states she was advised that the estate was complicated and that he was entitled to 5% commission as executor but was only going to take 3%. Mrs Walker says she remarked then that she thought that was generous of him. She says that she was told by Mr D’Alessandro that if there was a dispute about commission it would have to go to the Supreme Court and “it would hold up settlement for some time.” Mr D’Alessandro’s account is that it was Mrs Walker who raised his entitlement to 5% commission and that he responded by saying he would probably seek 3%. In his affidavit Mr D’Alessandro asserted that he believed he told Mrs Walker that even if an application had to be made to the Court, whilst it would cause a delay, he would still “probably be able to make an interim distribution when six months from probate had elapsed.” As I have observed, probate was granted on 9 August 2007, and so that 6 month period elapsed approximately 3 weeks before the conversation of 1 March 2008.
I accept the account of Mrs Walker. In relation to the executor’s commission it is consistent with the contents of a letter sent to all beneficiaries on or about 12 March 2008. The letter is from Littleton Hackford and D’Alessandro and was prepared by Pasqualina Coffey, an employee solicitor of that firm and the defendant’s sister. Mr D’Alessandro accepted in cross-examination that he read and approved this letter before it was sent.[4] The letter reads as follows:
[4]T 44.
“Mrs Jenny Loechel
8 Fumina Court
MORWELL VIC 3840
Dear Mrs Loechel
RE: ESTATE OF THE LATE IVY PUMP
As the administration of your aunt’s estate is now almost complete I am able to submit an Interim Administration Account for your information and retention. This shows what has been collected, what has been paid and the amount of funds in hand.
The issues which have yet to be finalised are-
1Taxation returns for the estate from the date of death (8 April 2007) to 30 June 2007 and 1 July 2007 to 30 June 2008. I have experienced some difficulty in getting Ivy’s papers from the solicitor who had a Power of Attorney from Ivy, but as soon as I have the required information, I will be able to arrange the lodgement of a Taxation Return to 30/6/2007. I won’t be able to loge the taxation return for the current year until after 1 July 2008.
2Mr firm’s legal costs have to be paid. At this stage I am able to say that they should be in the range of $16,000-$17,000.
3Executor’s commission. The law allows executors to be recompensed for their time and trouble to administer the estate of the person who has died and distribute the estate in accordance with the terms of the will. The Supreme Court can allow up to 5% of the estate to be paid to the executor. There are two options-
1)Mr D’Alessandro makes application to the Supreme Court and he will accept whatever the Court grants to him;
2)because all the beneficiaries are adults, you and the other beneficiaries may authorise the payment of executor’s commission to Mr D’Alessandro without resorting to court action which will take time and all costs incurred will be payable by the estate. The figure Mr D’Alessandro has in mind to claim is 3% of the estate which in the circumstances is considered to be a fair claim.
I enclose a form of authority. Please indicate what your preference is, that is, tick No 1 if you are prepared to consent to the payment of executor’s commission to Mr D’Alessandro at the rate of 3% of the estate, or tick No 2 if you want Mr D’Alessandro to make application to the Supreme Court for his executor’s commission.
Please note that the estate cannot be distributed until all of the above issues are resolved.
I am prepared to recommend a partial distribution of, say, $1,400,000.00 to be made by the end of this month (when the term deposit matures) if you and the other beneficiaries are all of the same opinion on the question of executor’s commission, i.e. allow Mr D’Alessandro to be paid executor’s commission at the rate of 3% of the total estate and return to me the signed authority. I will then be able to arrange a partial distribution.
If the beneficiaries require Mr D’Alessandro to make an application to court, I can’t say with any degree of accuracy when a distribution will be made, perhaps later in the year.
Even if all the beneficiaries agree on the question of executor’s commission, I cannot arrange a distribution of the whole estate at this time because Taxation Returns have to be lodged and a Taxation Return for the current financial year cannot be lodged until after 30 June 2008. So I expect that a final tax bill will be issued after next July.
If a partial distribution is made before the end of this month, I expect a final distribution can be made when the tax assessment is issued later in the year.
I also require for my file your FULL BIRTH CERTIFICATE, proof of change of name such a marriage certificate and your father’s full Death Certificate before a distribution is made. If you send or bring in the originals, then I will copy and return the originals to you. If you prefer to provide copies, then they will need to be certified copies.
I await to hear from you.
Yours faithfully,
LITTLETON HACKFORD & D’ALESSANDRO
Pasqualina Coffey
Encs.”
The bold emphasis is contained within the letter. All beneficiaries received a letter in identical form, together with the consent document.
I consider that the only sensible interpretation of the letter of 12 March is that each beneficiary was advised that, if they wanted a quick interim distribution, they should agree to the 3% commission, and that if they did not agree to that, then any distribution would be delayed, perhaps considerably. This, in substance, is identical to the position Mrs Walker states Mr D’Alessandro took in the conversation of 1 March 2008.[5]
[5]The letter to Jennifer Loechel was the only letter produced. It is Exhibit JKL1.
Mr D’Alessandro when confronted with this aspect of the letter stated “I didn’t turn my attention to that particular matter.”[6] I do not accept this. In my view the letter was calculated to extract from the beneficiaries an agreement to the 3% commission, and in fact the majority of the letter including the emphasised passage deals with the aspect of the executor’s commission that Mr D’Alessandro asserts eluded him.
[6]T 46.
I accept the evidence of all three plaintiffs, expressed in various ways, that they felt pressured into signing the consent document.[7]
[7]Affidavit of Shirley Walker Para 22.
Affidavit of Jennifer Loechel Para 15.
Affidavit of Alan Pump. Paras 9 and 10.
The plaintiffs discussed the letters of 12 March between themselves and the other three beneficiaries and signed the consent documents later in March. It is the agreement contained in these three documents that the plaintiffs seek to set aside.
Neither the plaintiffs nor the other beneficiaries sought legal advice before signing the consent documents.
Before signing these documents the beneficiaries were given no advice beyond the letter of 12 March 2008 as to how the $16-17,000 estimate of legal costs was reached, nor as to what work had been performed by Mr D’Alessandro as executor such as to justify the assertion that “3% (commission) of the estate… is considered to be a fair claim.”
By 2 April all beneficiaries had signed the consent document and Littleton Hackford D’Alessandro wrote to the beneficiaries enclosing a Statement of Interim Distribution and Acknowledgement. I understand that the beneficiaries signed this Acknowledgment thus facilitating the payment of the Interim Distribution.[8]
[8]The acknowledgement was not exhibited to any affidavit although the Statement of Interim Distribution and covering letter is Exhibit JKL3.
To the best recollection of Mrs Loechel she spoke to a barrister friend about the legal costs and executor’s commission after signing the consent document, but before signing the Acknowledgement. The conversation “confirmed my view that I may have been taken advantage of by the defendant.”[9] This conversation probably occurred between the signing of the consent documents and the receipt of the letter dated 2 April containing the Acknowledgment.
[9]Affidavit of Jennifer Loechel para 26. It is unnecessary to recite the full detail of the conversation. It can be found at T 26-27.
Legal Principles
As executor and trustee Mr D’Alessandro owed a fiduciary duty to the beneficiaries under that will.
The relationship between Mr D’Alessandro and the beneficiaries was a special one. He undertook to act on behalf of the beneficiaries and to serve their interests exclusively. All property he held was held on their behalf and in their interest.[10]
[10]Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 AT 96-7 per Mason J.
The Administration and Probate Act 1958 (“the Act”) provides that it shall be lawful for the Court to allow an executor a commission of not exceeding 5% of the assets of the estate. Such sum is determined by the “pains and troubles” the executor sustains and is to be “just and reasonable.”[11]
[11]Section 65.
Equity has historically regarded trusteeship as an honorary position. As a general rule trustees must not profit by their trust.[12] The rule seeks to avoid any conflict between the duties of the trustee and his personal interests.
[12]Law of Trusts in Australia Jacobs 6th Edition para 1739.
A trustee may receive remuneration where it is expressly or implicitly provided for in the instrument of trust or where there is a special agreement between the trustee and beneficiaries that the trustee shall be paid for his services.[13]
[13]Jacobs ibid para [1739].
Section 65 of the Act contemplates executor remuneration in appropriate circumstances. Such contemplation has been extant since colonial times. The first Supreme Court in Australia, established in New South Wales by the Charter of Justice, authorised the Court to allow “any executor” a percentage of a deceased person’s assets “as shall be just and reasonable, for their pains and troubles therein”.[14] Additionally the instrument of trust itself (the will) contemplates an executors “fee for the administration of (the) Estate.”[15]
[14]See Atkins (as executor of the Estate of Robert Charles Godfrey v Godfrey Supreme Court of Western Australia – In chambers CIV 2361 of 2004 at para [16].
[15]See Exhibit SRW1.
Executor commission therefore can constitute an exception to the general rule that a fiduciary cannot profit from his position as executor/trustee, but only in appropriate circumstances and after close scrutiny. “The courts scrutinise such agreements very closely, are ‘extremely cautious and wary’ in upholding them and will refuse to enforce them at the slightest sign of unfairness or undue pressure.”[16]
[16]Jacobs ibid para [1739].
Any benefit or gain acquired by a fiduciary in circumstances where a significant possibility of a conflict existed or where the benefit or gain was acquired by reason of the fiduciary position itself must be the subject of a full account by the fiduciary to the person to whom his obligation is owed.[17] In other words a beneficiary must be fully informed as to any potential benefit to be made by the fiduciary before he can give an informed consent to the fiduciary receiving that benefit.
[17]Chan v Zacharia (1984) 154 CLR 178 at 198-9 per Deane J.
The authors of “Equity Doctrines and Remedies”[18] put the obligation in these terms
If a person occupying a fiduciary position wishes to enter into a transaction which would otherwise amount to a breach of duty, he must, if he is to avoid liability, make full disclosure to the person to whom the duty is owed of all relevant facts known to the fiduciary, and that person must consent to the fiduciary’s proposal. (Citations omitted). What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. (Citations omitted) The circumstances of the case may call for independent and skilled advice from a third party.[19] (Citations omitted)
[18]Meagher Gummow and Lehane 4th edition.
[19]Para [5-115] p 179.
Whilst the extent of disclosure sufficient to procure an informed consent varies from case to case, it is never less than fulsome. Factors that impact on the degree of disclosure required include the relative sophistication of the beneficiaries, the need to explain the desirability of taking independent advice and the real possibility of conflict or indeed an actual conflict.[20] It is also relevant to determine what services are required of a fiduciary. Where (for instance) a solicitor offers advice about the wisdom of a transaction he may be obliged to offer fuller disclosure than if he merely is engaged to carry out a conveyance within the transaction.[21]
[20]Meagher et al at [5-115] pp 180-181.
[21]Clark Boyce v Mouat [1994] 1 AC 428 at 436-7.
I consider that an executor who is also solicitor for the estate and who is seeking to procure the beneficiaries’ consent to charge an executors commission, at a bare minimum ought disclose the following, in order for that consent to be informed:
(a)The work that he has done to justify the commission. This should be done with particularity.
(b)If he is invoicing the estate for legal fees and disbursements he ought identify with particularity what constitutes the basis for same. Only then can a beneficiary accurately measure the ‘pains and troubles’ occasioned to the executor beyond the subject matter of those legal fees and disbursements.
(c)That the beneficiaries are entitled to have this Court assess his commission pursuant to s 65 of the Act. This needs to be explained fully.
(d)That it is desirable that the beneficiaries seek independent legal advice as to their position on this issue of consent. In many cases where the beneficiaries are unsophisticated people and the issues are complex he ought insist upon them receiving independent legal advice and ought not enter into any commission agreement until they have.
Conclusions
The defendant argues that the plaintiff beneficiaries were sui juris, of sound mind and had simply made a common law election between inconsistent rights. The defendant argues that they were therefore bound by the consequences of that election. Three cases were cited in support of that proposition, United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30, Khoury v Government Insurance Office of New South Wales [1983-1984] 165 CLR 622 and Sargent v ASL Developments Ltd [1974] 131 CLR 634. In none of those cases did the election concern an election presented to a principal by a fiduciary nor was a fiduciary overlay considered. Even in the non-fiduciary context “full knowledge of the material facts” by the elector is necessary before the doctrine of election can apply, although there is considerable disagreement as to what that actually means.[22]
[22]Sargent at 642-645 per Stephen J.
I consider that the relationship between Mr D’Alessandro and the beneficiaries went far beyond that of mere parties to a contract. The beneficiaries placed their trust and confidence in Mr D’Alessandro to represent their interests faithfully. As a solicitor Mr D’Alessandro must have appreciated the fiduciary nature of the relationship. The plaintiffs have no legal training and to my observation were relatively unsophisticated country people. I consider that Mr D’Alessandro failed the beneficiaries as their fiduciary in a number of respects:
(a)At no stage did he provide any information as to how the 3% executor’s commission was determined. In the letter of 12 March the bald assertion is made that the figure is considered a “fair claim”;
(b)At no stage did Mr D’Alessandro offer any particulars as to how the $16,000-$17,000 estimate of legal costs was calculated. Without this information the beneficiaries cannot measure the appropriateness of the 3% commission;
(c)At no stage did he suggest (in the absence of providing the information above) that they ought obtain independent legal advice.
I consider that the failure to take the steps outlined above in (a) to (c) demonstrates clearly enough that the consent given by the plaintiffs was not the informed consent that equity requires.
There is one further aspect to Mr D’Alessandro’s conduct that deserves close scrutiny. At the time Mr D’Alessandro read and approved the letter of 12 March probate had been granted for over seven months. On his own account, even if the beneficiaries sought to have commission determined in court, he could still have made an interim distribution promptly.[23] This information was not conveyed to the plaintiffs and in fact precisely the opposite was conveyed in the 12 March letter. As I have already observed, in my view, the only sensible interpretation of this letter is this –
If you want your money quickly agree to the 3% commission. If you go to court to determine the commission you’ll have to wait.
This letter misrepresented the true position. I consider it was calculated to exert influence on the plaintiffs to consent to the 3% executors commission. Certainly it had that effect.
[23]T 45.
In my view the plaintiffs did not give Mr D’Alessandro their informed consent to the 3% executors commission proposal. They were given wholly insufficient information about the proposal and were given, in fact, misinformation in the letter of 12 March in the way I have described.
The defendant sought to argue that after receipt of the letter of 12 March 2008 the plaintiffs could have sought their own independent legal advice and in fact Mrs Walker did so by speaking to her barrister friend. This, so the argument went, relieved the defendant of the obligation to fully inform the plaintiffs, or at least excused him for not doing so. The plaintiffs then made their common law election and were bound by it.
I consider that this submission misconceives the nature of the fiduciary relationship. The beneficiaries in this case already had someone in whom their trust reposed, Mr D’Alessandro. He proposed the 3% commission, his firm (with his approval) in a letter recommended it as fair, misrepresented it as being the only way to a quick distribution and enclosed the consent documents with that letter. The trust and confidence which ought characterise a fiduciary relationship would be undermined if the fiduciary could simply avoid the consequences of a breach by pointing to a principal’s failure to seek independent advice. A fiduciary is not some canny contracting counterparty to be watched like a hawk. He is the principal’s representative.
I propose to order that that agreement of the beneficiaries consenting to the defendant’s requests for executor’s commission of 3% is unenforceable and that it be set aside.
I will hear argument as to costs after delivering these reasons.
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